Creating an Investment Strategy - Part 1

When I wrote about market volatility last week, I mentioned "sticking with your investment strategy". Most folks never heard of an investment strategy and many financial advisers have neglected to develop one with their clients.

Let's review what is involved in building that strategy.

An Investment Strategy is your written statement that lists measurable goals and hopefully, shows repeatable results:

1. You must be able to assess and state your tolerance for risk (how much money you are willing to lose for potential gain?).

2. Determine your rules for buying and selling (both stocks and bonds).
Will it be decided by a certain percentage up or down? Will it be a target price? Having a rule removes emotion and allows you to act decisively.

3. Make provision for transaction costs( both commissions and fees).
Will you pay a fee for AUM (assets under management - anywhere from 1% to 2.75%) or will you pay straight commission for each buy/sell transaction? Or will you use a wrap fee that includes all?

4. Decide your preference for passive index funds (which may minimize taxes) or actively managed funds.
Passive funds pick a benchmark and rarely change the holdings whereas an actively managed fund has a manager or team who buys and sells at their discretion towards a stated objective.

5. Choose a Benchmark for comparison and measurement.
In order to measure the performance of your portfolio you must have something to measure it against. You may choose the S&P 500, the top 500 U.S. companies, the Dow Jones Industrial Average, the top 30 domestic companies or some other way to compare and measure how well or poorly your portfolio is performing.

Be $ Smart - with a written Investment Strategy you create the playbook to manage volatile markets.

Let me know if you need help writing your Investment Strategy. I'd be happy to offer guidance. Part 2 next week.

U.S. Treasuries

Among the safest investments are U.S. Treasuries. They are backed by the full faith and credit of the U.S government. (Backed by you and me and the taxes we pay.) When you start at the bottom of the investment pyramid, Treasuries are part of your investment foundation along with savings accounts, CD's and money markets.

Essentially, when you buy a Treasury you are lending money to the government.
Because U.S Treasuries are so safe, they earn very little interest as they carry minimal risk.

U.S. Treasuries come in several durations:
A Treasury Bill, or TBill, will mature in under a year,
Treasury Notes will mature in 1, 3, 5, 7 or 10 years and
Treasury Bonds, long bonds, mature in 20 and 30 years.

The most known Treasury is the 10 year which is used as a benchmark (measuring/comparison tool) for the Treasury market and for mortgage rates.

Treasuries may be bought through a brokerage account, at a federal bank and online at www.TreasuryDirect.gov.

Be $ Smart - build your investment portfolio foundation with some U.S. Treasury bills, notes or bonds for safety and predictability.